FBR Capital Markets Pursues Buyback

Move Provides Greater Independence From Arlington Asset

The local investment bank formerly known as Friedman, Billings, Ramsey Group yesterday announced it was taking another step toward splitting into two independent entities, with different names and businesses.

FBR Capital Markets is buying and retiring $72 million of its shares from Arlington Asset Investment Corp., which until February was operating as FBR Group.

The transaction allows FBR Capital Markets, which has the original company's profitable investment banking, research, trading and mutual fund businesses, to move forward as a publicly traded company with zero debt.

Arlington Asset, the other leg of the original FBR, is left with high-risk mortgage assets on its balance sheet, although it will still own 39 percent of FBR Capital Markets, down from 56 percent. Shares are being sold at $4.35. They closed down 35 cents yesterday, or 7.6 percent, at $4.25.

The transaction is scheduled to close June 2.

"The biggest reason we bought them back is that there was a lot of uncertainty in the market about what Arlington Asset was going to do with the shares," said FBR Capital Markets President Richard J. Hendrix. "This is a way to remove that uncertainty, in particular remove the uncertainty of an owner who owns more than 50 percent of the company. It also makes us a truly independent company."

John J. Foff III, senior analyst with SNL Financial, said the move "definitely eliminates a lot of the risk for FBR Capital Markets and helps them become more stable."

The two companies are also unwinding some cooperation agreements, and FBR Capital Markets said it wouldn't stand in the way of Arlington if it chose to sell any of its remaining stake.

FBR Group began splitting into two separate companies in 2006. FBR Capital Markets took the profitable, operating end of the business, and Arlington Capital took the risky mortgage-backed assets, which have lost millions in value since the onset of the financial crisis. FBR Capital Markets debuted as a public company in June 2007.

In February of this year, FBR Group announced it would change its name to Arlington Asset to avoid confusion with FBR Capital Markets. Arlington Asset plans to change its ticker symbol to AI. The company's shares, still trading under the symbol FBR, closed yesterday up 1 cent, at 45 cents.

FBR Capital Markets also said yesterday that Ralph S. Michael III, 54, will join the board of directors, replacing John T. Wall, 67, who has been on the board since March 2007.

Michael served in executive positions with Ohio Casualty Insurance, U.S. Bank and PNC Financial Services Group. Michael is also a director of AK Steel, Key Energy Services and the Cincinnati Bengals.

Wall had been a director of FBR Group since October 2002. He is chairman and chief executive of Capital Markets Advisors. Wall is also co-chairman of World Trade Center Dulles Airport Capital Advisors.